In this month’s edition:
- Payment Systems: China 1, US/Europe 0
- Monopolies and Regulation: Which comes first?
- Growth vs De-Growth and How to Save the Earth
- Why are there so many primary school teachers on the Irish dating scene?
Payment Systems: China 1, Europe/US 0
I’m currently reading Cashless, by Rich Turrin, about payment systems in China. It has opened my eyes to how far behind the EU and the US are when it comes to using technology to improve access to and the quality of financial services.
In China over the last decade, government and Big Tech (Ali Baba/Alipay and Tencent/WeChat) brought their level of financial inclusion to 87% according to Ernst & Young. By comparison, that same financial inclusion index in the US is stuck at 46%. In short, while the US and Europe try to re-shape old, paper-based systems into digital form, China is creating clean digital solutions from scratch, untethered from legacy interests and embracing, rather than cautious, of technology.
Already, there is a huge gap between the mobile/technology based payment systems in China, and the legacy bank/card based systems in the US and Europe. In 2019, mobile payments in China were 500 times larger than in the US, even though Chinese GDP is only a third of the US! With China’s next generation of currency, the gap between the US and EU is about to get even larger. Two acronyms you’ll soon hear more of are CBDC (central bank digital currency) and DC/EP (digital currency, electronic payment). Inspired by elements of cryptocurrencies like Bitcoin, but centralised and with complete governmental control and identification requirements, CBDCs like the digital Yuan represent a digitally native implementation of currency, i.e. not one that builds software on legacy paper-based systems, but a digital-only payment system that is designed from scratch. The Chinese Central Bank is already testing these systems and they are faster, simpler, cheaper and provide much greater levels of information and security than what is used today.
While China rapidly improves its payment systems, US and EU governments seem stuck in two ways:
- The US, and the EU – to a slightly lesser degree – are tethered to regulated banking monopolies that are not natively digital. Governments struggle to overcome lobbying pressures slowing the next generation of technology.
- US and EU governments and companies are slowed by constant debate between preventing censorship and preventing illicit activity such as money laundering, child pornography (e.g. Apple stating they would scan phones, only later to delay the policy) and pornography (e.g. OnlyFans recently banned sexually explicit content due to pressure from payment processors, only to make a U-turn). The resultant approach is fractured and polarised rather than practical.
The EU and US are not going anywhere fast when it comes to digitisation.
There is then the third approach to payment systems of trans-national crypto platforms like Bitcoin and Ethereum. These embrace technology but do so with a libertarian streak that is off-putting to US and EU governments – particularly around issues of identification/privacy/anonymity. A significant (although probably falling) portion of the crypto community is dogmatic on issues such as anonymity, which goes against what most of the public find reasonable. Meanwhile, politicians resist engaging with crypto unless it is on the terms of existing financial regulation. So, the US and EU has two factions – traditional finance and crypto, whose interests and intents are probably largely aligned, but have managed to malign each other. It is very important that there are digital currency alternatives to the Chinese digital Yuan, which will be here in just a year or two, so I am frustrated by this fracture between most governments and crypto.
Ideally, I would like there to be a number of strong digital currencies that do have government approval. There are a lot of open technical questions and it seems that trial and error on different approaches is necessary – hence why we need more than one. Already, we are seeing certain countries (Singapore, Hong Kong, El Salvador) taking forward-looking approaches – that leave room for private innovation – on currencies. The European Central bank is progressing plans for a digital currency, but regulation for private entities remains burdensome and there seems to be little appetite, at least in Ireland, for engagement other than with existing regulations as a prerequisite.
Crypto in its current form needs to better prioritise designs for avoiding illicit activities. This would bring them more in line with what a majority of the public considers reasonable. Governments on the other hand need to better understand the technical improvements that digital currencies bring – for financial access, for efficiency, for robustness and for the minimisation of censorship. A positive approach is needed from countries and regulators to engaging with new digital currencies and approaches, including an openness to replacing old regulations.
*This comment is harsh on Robinhood, as there are positives to what that company has done. Robinhood has brought to light the importance of having an easy to use app/interface, over the old and complicated software and paperwork that banks tend to use. It is also healthy for the market that individuals take an interest in individual stocks over just buying passive index funds (although that may be negative for the median individual).
Monopolies and Regulation: Which comes first?
If you’ve lived in America, you probably have spent hours, if not days, of your life talking on the phone to Comcast – one of the phone/internet providers. In many parts of the US, Comcast is the only option for internet and, as with many monopolies, bad customer service is a feature. If you find a company’s service is bad, you might simply suppose a) they will go bankrupt, or b) they are a highly profitable monopoly.
My second example here is Amazon, which I understand has excellent customer service in the US [note: unfortunately not in Ireland] but terrible supplier service (as you can read from my own experience here). Amazon is not (yet) a monopoly from a customer standpoint, but they are often the only place (or the main place) their suppliers sell, which makes them a monopsony.
My third example is Interactive Brokers, a global company that allows you to buy and sell stocks. For Irish businesses, it is possibly one of the only options for buying and selling stocks, along with Davy Stockbrokers. It recently took me three months to set up an account for a company, and the customer service was terrible. Again, a monopoly with bad service.
Ok, that’s enough examples, so let’s move to the point. Which comes first – regulation or monopoly?
Typically, I would say the public thinks of the monopoly coming first and then the government stepping in to apply regulations thereafter. This is the narrative that comes through when we hear of Apple and Google and Standard Oil (to take a historical example) in the news. With technology based companies, this narrative is largely true. The monopoly comes first and then comes the clamour to regulate.
However, it also happens in the other direction (regulation leading to monopoly), in two different ways.
- In telecommunications or exploration, it is been common to auction off rights – giving certain companies an official monopoly to provide phone services or extract oil.
- In finance, regulations often develop over time that make it hard or impossible for new smaller companies to compete. My sense is that this is the case for Interactive Brokers (and Davy) for the services they offer to businesses. Specifically, neither DeGiro nor Revolut nor Wise (formerly TransferWise) offer stock brokerage solutions to business customers even though they do offer them to private customers. Having seen the amount of paperwork I had to fill out for Interactive Brokers, I suspect this bureaucracy is contributing to a monopoly-type market.
Nuance is important when it comes to monopolies. I take a positive view of monopolies that are not caused by regulation, and a more negative view of monopolies created by regulation. Interestingly, if you look at Apple, Google and Amazon, “monopolies” not created by regulation, customer service is good. In more regulated monopolies, this tends not to be the case.
Growth vs De-growth and How to Save the Earth
There are two opposing ways to look at how we might maintain a liveable environment: growth and de-growth.
“De-growth” is the idea that humanity must reject further economic growth and return to past ways of living if the world’s environment is to be saved (and anthropological climate change to be averted). Noah Smith provides a nice primer on de-growth in his recent freely available essay. Many criticisms of “consumerism” or “globalisation” implicitly contain elements of the de-growth narrative that we have more than we need, and a dialling back of the economy is the solution. A more specific articulation of de-growth is that we don’t need to grow or develop further, we need to redistribute. As Noah Smith points out, this would involve moving each person in the world to an annual income of $17,000 to even things out.
Growth is the idea that, with continuously improving technology, we can always get more for less. David Deutsch is a strong advocate for this approach in his book “The Beginning of Infinity”, which I summarized and reviewed here. Growth is the argument that a rising tide lifts all boats – against which there is the criticism that some have yachts and most have dinghys.
It’s anecdotal and may very well be my reading selection, but I sense a move this year and last away from de-growth and towards growth:
- COVID vaccines. Although the long term success remains to be seen, the public perception is that this is a win for technology.
- Lab grown meat. Despite my appreciation for some well reared Irish meat, and my reluctance to settle for less, I have to concede and even support that lab growth meat is quickly improving in quality.
- Contactless payments. What has happened long ago in China is now happening in Ireland and the US and not just payments but also identity cards (digital COVID passport in Ireland, soon state IDs in the US) are moving to phones.
Why are there so many primary school teachers on the Irish dating scene?
I heard, from a friend, that the prevalence of primary school teachers on dating apps in Dublin is anecdotally about ten times that in Boston. I’ve been curious to understand why this is the case.
- Student teacher ratio – this is very roughly the same in Ireland as in the US, certainly not enough to explain a tenfold difference.
- Teachers don’t live in Boston? I don’t have data on this, but maybe more of them live in the suburbs and aren’t in my friend’s 50 kilometer radius?
- My friend might have an eye for primary school teachers – even though many don’t list it on their profile. Always a possibility.
- Primary school teachers are mostly single. I don’t have any data, but it sounds a bit harsh on primary school teachers.
I’m tending to lean towards explanation 2, although it’s not fully satisfying, so please email me with back with other theories so I can put this one to bed for my friend.
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